US Government Shutdown Fears Risk Hurting Asia Stocks as Yen Gains

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Asia Pacific Market Open – US Government Shutdown, US Dollar, Canadian Dollar, Japanese Yen

  • Global stocks accelerated selloff after Fed rate hike Wednesday: Asia, Europe and the US ended red
  • US government shutdown concerns increased, further souring sentiment as USD fell with S&P 500
  • Anti-risk Japanese Yen looks past CPI data, may rise as Asia stocks echo losses from Wall Street

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After Wednesday’s Fed rate hike, global stock markets extended their selloff as market mood deteriorated. The central bank, while envisioning one less hike next year than previously estimated, was still more hawkish than what the markets were anticipating. The Nikkei 225 closed at its lowest since September 2017, the DAX fell by 1.44% and the S&P 500 closed 1.58% lower Thursday.

Sentiment further deteriorated during the US trading session after reports crossed the wires that President Donald Trump would not sign the Senate-passed stopgap bill to avert a government shutdown tomorrow. Consequential political risk sent the US Dollar lower despite a revival in 2019 Fed rate hike bets. Crude oil prices also further dropped as market mood further soured.

The worst performing major was the Canadian Dollarwhich dropped with the decline in crude oil. Although local front-end government bond yields rallied as market expectations of a BoC hike in April increased. This may have contained further losses in CAD. Meanwhile the pro-risk Australian and New Zealand Dollars underperformed. I am currently holding short NZD/USD after selling yesterday.

Meanwhile the anti-risk Japanese Yen outperformed against its major counterparts, benefiting from the deterioration in sentiment. The currency brushed off a mixed local inflation report early into Friday’s session. Japan’s headline CPI rate ticked down to 0.8% y/y in November. But, core measures disappointed relative to economists’ expectations (see details on the economic calendar below).

The minimal reaction in JPY speaks to the negligible impact local economic data tends have on the currency. After all, data can only move a currency to the extent it alters monetary policy expectations. This was reinforced yesterday after the Bank of Japan left most of its policy settings unchanged.

With that in mind, the anti-risk Yen will likely focus on risk trends during Friday’s Asia Pacific trading session. Regional bourses seem to be at risk to extending losses following the disappointing performance on Wall Street. This may sending the Australian and New Zealand Dollars lower. The US Dollar can also struggle finding support until a US government shutdown is averted in the interim.

US Trading Session

US Government Shutdown Fears Risk Hurting Asia Stocks as Yen Gains

Asia Pacific Trading Session

US Government Shutdown Fears Risk Hurting Asia Stocks as Yen Gains

** All times listed in GMT. See the full economic calendar here

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